The Antitrust Division of the U.S. Department of Justice, along with Michigan’s Attorney General, last week filed a civil lawsuit against Blue Cross Blue Shield of Michigan (“BCBSM”), complaining that the health insurer’s contracts with hospitals violate Section 1 of the Sherman Act. In United States v. Blue Cross Blue Shield of Michigan, No. 2:10-cv-14155 (E.D. Mich. Oct. 18, 2010), the DOJ alleges that BCBSM unreasonably restrains trade by requiring hospitals to agree to “most favored nation” clauses in its contracts. Most favored nation (“MFN”) clauses typically require the seller of a product or service (in this case, the hospitals) to charge the buyer (BCBSM) the lowest rate that is available to any other buyer. If another insurance company negotiates lower reimbursement rates for health care services than the rates negotiated by BCBSM, then BCBSM’s rate automatically is reduced to the lower rate. The DOJ alleges that some BCBSM contracts go further—requiring hospitals to ensure that other insurance companies actually pay more than BCBSM pays by guaranteeing that BCBSM receive a reimbursement rate as much as 30 to 40% lower than the other insurers (what the government calls “MFN-Plus” contracts). The DOJ alleges that both typical MFN and MFN-Plus clauses violate Section 1 because they reduce the ability of other health insurers to compete with BCBSM (or actually exclude BCBSM’s competitors), and raise prices paid by other health care payors.

Most favored nation provisions are common in the health care industry, as well as other industries. This case bears close watching, as it could have important implications for future contracting decisions.